Dairy financial situation is critical in California

Dairy financial situation is critical in California

Producer group petitions state for temporary milk price relief.

by Dennis Halladay, Hoard’s Dairyman Western Editor

Bad has turned to worse for milk producers in the nation’s largest dairy state.

Few, if any, California dairies managed to fully recover from the 2009 cost:price crisis before another outbreak in 2012. Two things are enormously different this time that make it far more dangerous for producers: They have little or no equity to fall back upon, and the dairy banking world’s ability to be lenient is tiny.

It’s against this backdrop that the state’s largest dairy organization put out a cry for help to Sacramento this week. On Monday, Western United Dairymen (WUD) filed a formal petition with California Department of Food and Agriculture Secretary Karen Ross seeking temporary emergency price relief in two areas:

1. An increase of 50 cents per hundredweight in all producer milk price classes from October 2012 through March 2013.
2. Permanent removal of the 75 cents per hundredweight cap on the whey value component used to compute Class III prices.

“WUD is deeply concerned about the current plight of dairy families, and while a 50-cent temporary price increase will not make dairy margins positive again, we believe that such an emergency price relief is required to at least 'slow the bleeding,'” said WUD President Tom Barcellos.

“Bleeding” is perhaps an understatement of what is actually happening on California dairies. According to Bruce Miles, a partner at Genske, Mulder & Company, the nation’s largest specialized dairy accounting firm, dairies are drowning in red ink.

Preliminary income and cost data gathered by the firm during the first three months of the year, before feed prices exploded, show the average California dairy lost 60 cents per hundredweight. In southern California it was $2.

“The second quarter numbers will be worse because milk prices dropped,” he said. “We’re expecting the average loss will be twice as big.”

Class III milk futures prices have been rising almost daily in recent weeks, but Miles said they aren’t keeping up with feed prices. He predicts $22 milk before the end of the year . . . and wonders how many California dairies will still be around to enjoy them.

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